Prime Rate Credit Cards
Many consumers believe that prime rate credit cards are the best credit cards available. Because the prime rate is based on what that the Federal Reserve Bank charges to loan money to banks, many credit cards that are based on this index are, in fact, very low. However, when a financial instrument is based on that particular index, that indicator dictates what the rates will be. Therefore, if prime rates increase, so do the interest rates on the card. By the same token, when rates go down, rates on the card go down. Or at least that is the assumption. Rarely is that the case, however. Usually when the prime index goes down, the interest on credit cards, does not decrease. The best that can be hoped for is that the index does not climb.
The reality is, prime rate credit cards are simply cards that use the prime rate index as a basis for setting the interest. The margin (or the profit margin) is a more real determinant of whether a particular rate is any good. The margin is how much money the financial institution is making; above prime rates. Financial institutions add the index to the margin to create the interest that is charged to customers. For example, when the margin is 2% (for people who have high credit scores) and the index is at 4%, the interest for the customer becomes 6%. Now, for people with low credit scores the margin may be 9%. When the 11% is added to the index (which is the same as in the above example) of 4%, the rate becomes 15%. In each case, the final number is different although they are both based on the prime rate.
When choosing a good deal on credit cards, there are many other factors to consider other than just looking for prime rate credit cards. In the case of fixed rates, there is a belief that "fixed" means that the interest will not change, no matter what. Not true. In this context, "fixed", simply means that the interest does not go up and down according to a particular index. However, in most cases, the interest can and does usually change in accordance with the terms and conditions of the agreement made at the time a person accepts them. Generally, the agreement will give a specific period of time, say 30 days notice, before the company raises the "fixed" rates to other "fixed rates." Be encouraged though, it is rare that a company would raise rates on an existing account. The exception is, when a person is late or goes over their limit, there is usually a penalty which may include increasing the rates.
The choice made about whether to go with fixed or prime rate credit cards should include a number of factors. Some things a person should consider when analyzing which is better are, how are the annual percentage rates calculated, what happens when a payment is late, whether there is a difference between using the card to pay for something versus getting cash at an automated teller machine, whether there is a grace period for making payments, and whether the company offers any additional benefits. When a person is looking at the annual percentage rate (APR), it is important to know whether there is just one APR or are there multiple APRs. The APR is what percentage of interest a person would pay on the balance if it were stretched out over a years time. The balance on an account is likely to increase and decrease throughout the period, but the stated APR stays the same. It may be a different rates for different activities, but it does not vary from billing cycle to billing cycle like the balance on the account may. There could possibly be a certain APR for purchases, a different one for cash advances, and a third APR when dealing with balance transfers.
Remember a credit card is just that, a card that is used to pay for a purchase on credit. And prime rate credit cards are no different. Owe no man anything, but to love one another: for he that loveth another hath fulfilled the law. (Romans 13:8) When the company also allows a person to get cash from the same card, it is no longer a purchase, but a loan. For the convenience of the ability to get cash quickly (there are no additional forms to complete or hoops to jump through), the person merely pays a premium fee. On the opposite side of the spectrum is the ability to transfer the balance of one card to another. Although it is a benefit to the consumer, the company benefits as well, because the interest that would have been paid to a different company is now coming to them. For that, the company is willing to give a person a much lower starting interest rate; many times these are called introductory rates. The idea is that an individual will eventually make a purchase. Then, the entire balance may be subject to the higher rate. This happens whether a person has fixed or prime rate credit cards.
Although many people believe that they are getting the best deal when they have prime rate credit cards, the other variables discussed in this article should be considered. The prime index is only one of several other indexes that a card could be tied to. The best way to ensure that the interest rates a person gets will be the lowest possible is to do research. Prime rate credit cards can be a good deal, but its not automatic.
Lowest Fixed Rate Credit CardOffers for the lowest fixed rate credit card abound and the mailbox is flooded with credit card balance transfer deals. It is that most wonderful time of the year. Holiday bills from credit cards have come to call, and they are like demanding house guests who never seem to leave. Interest rates in the mid-teens present a depressing prospect. Will these debts even be paid off before summer vacation rolls around? That is, provided that one can even afford a vacation this year.
A person does not have to be a spendthrift to get into a similar predicament. Gifts presented were not outrageous. Cash was used as often as possible. Even though everyone tries to avoid using them, in many households credit cards were surrendered several times to various merchants, especially in that last frantic rush for necessary holiday food and supplies or that unplanned, last-minute gift. Totals on even the lowest fixed rate credit card can add up at an alarming pace. A person can almost begin to panic, casting around frantically for the latest credit card balance transfer deals. Hold on, though, for in the same way that unplanned financial decisions can cause trouble, solutions embraced while in a distressed state of mind can compound the misery.
Perhaps the worst part of dealing with debt is a feeling of anger at oneself for allowing the financial situation to get out of hand again. This is followed closely by the fact that nearly everyone knows at least one person who seems to breeze through holiday spending without incident, relaxed and well-prepared! How do they do it? It would not hurt to ask. Most people will gladly share general ways they manage household finances, and a person might learn a thing or two. There are many aspects of financial planning which are covered in books and on the Internet. A search for terms like 'frugal living' or 'managing household finances' will yield many hours' worth of free articles and hopefully, several ideas to employ as well instead of resorting to the latest credit card balance transfer deals.
Finding the lowest fixed rate credit card is not too difficult. An Internet search can yield a list of potential candidates. Use fixed rather than variable rate cards. Although initially the teaser rate on a variable card may be better, in several months this rate will end and neither a debtor nor his or her credit score will benefit from constant hopping around after better deals. Instead, find the lowest fixed rate credit card. Information on the best balance transfer deals is similarly available. In searching for the lowest fixed credit card or balance transfer options, be sure to read the fine print carefully. Check to see if there are hidden fees or requirements. Most balance transfers will charge a fee; however, it is possible to find periodic offers without such charges. A further practice to consider is the current stipulation found in many credit card agreements that if the customer is late on any other bills (even utility bills!) the special rate will be history and severe penalty interest rates will be assessed.
An item which should appear in every financial plan is that of the idea of forethought. Actually not only the idea, but the implementation of such as well. Forethought involves several related aspects. It is concerned with careful provision for future needs and is also composed of acts undertaken with deliberate intent. Proverbs 14:1 says that "The wisdom of the prudent is to understand his way: But the folly of fools is deceit." In contemporary terms that might be translated to mean that the reason the actions of the wise seem to work to their benefit is that they have taken the time to understand why they do certain things, but when foolish, unthinking choices are made, the result is that the fool is deceived and suffers hardship rather than anticipated benefits. Perhaps this is because one is only relying upon human wisdom rather than combining this with principles found in the Word of God, which sometimes seem counterintuitive.
What types of things should a person be thinking about? How can a person 'understand his way'? First, set out a list of debts owed and reconcile bank accounts to determine the current financial situation. Make up a list of the percentage rates of each debt. Pay the minimum payment on each account, while putting any available funds towards the debt with the highest rate. When that debt is paid, put what used to be paid on the first debt toward the second debt, while continuing minimum payments on all other debts. Soon debts will be erased at increasing speeds. Sometimes, offers for credit card balance transfer deals may be used to accelerate this process, if balances can be transferred at a no-interest rate for a period of a year. However, if this alternative is used, two pitfalls need to be avoided.
First, do not use, --ever-- the card with the zero percent rate to incur additional debt. As far as the debtor is concerned, that card exists only to give a person the advantage of not incurring further interest on present debt. File it away somewhere where it will be safe yet not readily available. The second pitfall to avoid is as follows: Needless to say, while in debt-paying mode, even the other credit card(s) which have been swept clean by a balance transfer are not to be used to incur further debts, unless one wants to spend his or her entire life having to give everything earned to the credit card companies. Instead, take time to determine what goals one would like to accomplish and begin to take small steps toward that goal. This can be accomplished without spending additional funds. Like interest compounding in a savings account, even small adjustments in the way financial decisions are made can yield big results, especially in peace of mind, which is priceless.